CA’s Self-Inflicted Fuel Crunch Escalates Economic and Political Tensions
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California drivers consumed over 1 billion gallons of gasoline per month in 2024, but the state’s ability to produce that vital fuel is shrinking amid policy-driven market shifts, rising regulatory costs, and declining investment in in-state refining capacity.
Two major closures are looming. Phillips 66 is preparing to shutter its Wilmington refinery by the end of this year, and Valero intends to cease operations at its Benicia facility by April 2026. Together, the two facilities supply about 18% of California’s gasoline – a significant hit for a state that already lacks sufficient in-state production to meet its full demand.
Matt Regan, Senior Vice President of Policy for the Bay Area Council, captured the growing concern shared by many across the state:
“I think every right-minded person agrees that we need to transition away from fossil fuels … but this is stepping off a cliff.”
That sentiment is echoed by energy economists who warn that the pace of the state’s transition could outstrip the infrastructure and market readiness needed to support it. Severin Borenstein, a UC Berkeley energy economist who has long studied California’s fuel market, cautions that the loss of refining capacity could push gasoline prices up significantly.
“Between [Phillips 66 Wilmington and Valero Benicia], they produce almost 20% of California’s gasoline, which is a huge blow,” Borenstein told SFGATE. “[Y]ou can’t take 20% of the supply away without having a very significant impact on the price.”
A new analysis by USC business professor Michael Mische adds quantitative weight to those concerns. His modeling suggests that, under multiple scenarios, California could see gas prices rise above $8 per gallon in the coming years as a result of the closures.
“The models all indicate the same thing – the price of gas is going up,” Mische said, noting that the exact outcome depends on how the state manages the transition and whether it can secure alternative supply sources.
Even if California avoids direct supply shortfalls, the costs of importing fuel from distant markets are expected to climb. California’s fuel market is geographically isolated, with no pipeline connections to other major U.S. refining hubs like the Gulf Coast. The state’s strict environmental standards, including those under the Low Carbon Fuel Standard (LCFS), further limit supply options.
Currently, most of California’s imported refined fuel comes from Asia, with China, South Korea, Taiwan, and India leading the list. But those shipments require long lead times and face added costs while increasing global emissions from tanker transport - undercutting California’s stated goals.
Losing refineries “means you have to bring in gasoline from all over the world,” Borenstein said. He added that “you have to have port facilities, and you have to have pipelines, you have to have places to store it, and California is not prepared on those fronts.”
The policy drivers behind the closures are a point of growing political contention. While Governor Gavin Newsom and state lawmakers have set ambitious targets for decarbonization – including a 2035 phase-out of new internal combustion vehicle sales – critics argue that the state is moving faster than infrastructure can adapt.
Industry groups have warned that state policies are discouraging investment in California’s remaining, and badly needed, refining operations. Labor groups have also begun to raise concerns about job losses and regional economic impacts, particularly in areas like the Bay Area and the Central Valley that are closely tied to the energy sector.
In Sacramento, the issue is likely to intensify as legislators weigh the economic consequences of California’s energy policies and tenuous transition plan. Lawmakers from oil-producing and working-class districts are already calling for more transparency and contingency planning.
With fuel demand still strong and alternative infrastructure lagging, the state faces a complex balancing act: how to advance climate goals without destabilizing the energy market or alienating consumers. Whether policymakers can thread that needle will be a defining test in the years ahead.